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Downsizing Blog

The federal government is running $1 trillion deficits, but that hasn’t slowed down the government’s corporate welfare gravy train. As a microcosm of the business subsidy problem, I happened to notice in an Ohio newspaper that the U.S. Department of Commerce is footing the bill for the Youngstown/Warren Regional Chamber to fund a 16-day junket to China and Taiwan.

A new NBER study from two Harvard economists analyzed substantial fiscal policy changes and the economic consequences in twenty-one OECD countries from 1970-2007. Their findings are at odds with the approach of U.S. policymakers who insist that the government can tax and spend the country back to prosperity.

In a 1997 study, economist Robert Higgs persuasively argued that “the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty in the minds of investors.”

According to a new report from the Federal Reserve Bank of San Francisco, the Federal Housing Administration has “revived” the subprime segment of the housing market. Thanks to FHA lending, “the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20 percent, the same share as when subprime securitization peaked in 2006.”

Policymakers considering the creation of a health insurance “public option,” or even an expansion of Medicare, should remember that government health programs already wear a bullseye when it comes to fraud and abuse. According to a report on CNN.com, organized crime has found a cash cow in Medicare and Medicaid.

Whether it’s the $700 billion TARP, the $787 billion stimulus package, or the late not-so-great Cash for Clunkers, policymakers are demonstrating that they’ll spare no taxpayer expense to “fix” the economy. The present recession has its roots in government policy, but whoever caused it, is the federal government even theoretically capable of righting the economic ship?

The Wall Street Journalreports that the IRS is investigating 100,000 “suspicious” tax returns over possibly fraudulent claims of home buyer tax credits. Included in the economic stimulus package in February, the $8,000 tax credits were set to expire at the end of November, but the housing lobby is pressing Congress for an extension.

The Washington Postreports on the curious case of David W. Wilmot, a D.C. lobbyist who also earns $300,000 a year as the head of a troubled nonprofit group that’s funded by Medicaid. D.C. officials have asked a judge to put two of the nonprofit’s group homes in receivership and halt all referrals to its eleven facilities because of “systemic” problems.

The Washington Post has delivered an exposé on the rampant corruption and waste occurring in the District of Columbia’s HIV/AIDs Administration. According to the Post, “the agency receives about $100 million a year, largely from the federal government, for prevention, medical care, housing, case management and support services.”

The Department of Defense’s Defense Contract Audit Agency is responsible for performing all contract audits at the department. Unfortunately, the agency seems to have developed an excessively cozy relationship with the contractors that it is supposed to be overseeing. That is bad news for taxpayers because of the massive size of DoD’s contracting activities.